January 6, 2017 / 10:28 AM / 7 months ago

U.S. short-seller distances itself from Hong Kong-focused copycat

3 Min Read

(Reuters) - U.S.-based activist short-seller Glaucus Research on Friday distanced itself from a company it said had used its name and branding to conduct short-sell campaigns against two Hong Kong-listed companies.

The comments by Soren Aandahl, Glaucus' director of research, followed the publication of a report this week by little-known Zhongkui Research alleging Sinosoft Technology Group (1297.HK) had fabricated its financials.

Sinosoft denied the allegations in a Dec. 29 stock filing, but shares of the company, which were halted for a day when the report was published, fell 23.4 percent when it resumed trading.

Zhongkui Research, whose origin and founders are unknown, appeared to have used Glaucus' name for its online web searches, copied its website format, and borrowed from the U.S. firm's description, Aandahl said in an email.

"Investors should know that we have absolutely no ties to this copycat and have reached out to our lawyers to see what legal remedies we can pursue for this theft of intellectual property," he said.

The company's legal options currently include suing Zhongkui in the United States or Hong Kong, Aandahl added.

Glaucus has conducted shortselling campaigns against firms globally by making reports uncovering financial fraud, and then making a profit by shorting the stock. It has previously targeted Hong Kong-listed companies but has no formal operations in China, the company said.

Zhongkui Research did not respond to requests for comment. Little public information exists about the Hong Kong-focused short seller, such as whether it is a Chinese firm or a unit set up by a foreign company.

Hua Han Health Industry Holdings, the other firm targeted by Zhongkui Research, could not be reached for comment.

Glaucus Research's run-in with Zhongkui Research is not the first time a Western firm has experienced its brand being ripped off in China.

In 2015, Goldman Sachs faced trademark infringement issues when a Shenzhen-based leasing company used the same name, and many big foreign brands have faced similar issues in China in the past.

Glaucus, named for a god in Greek mythology who is the savior of sailors and fishermen in distress, said it was surprised to learn about the similarities of Zhongkui's methodology and style.

Zhongkui is named for a figure in Chinese mythology associated with good deeds. On their websites, both firms identically say they offer "a unique combination of experience in capital markets, accounting, law, and investigative journalism".

Besides Zhongkui, other China-based short campaign firms have arisen, such as Hongqiao Exposed and Trinity Research Group, said analyst Claire Stovall of short-sell campaign-tracking firm Activist Shorts.

In the past, short-seller imitations have waged successful campaigns against the companies concerned, she added.

By Jess Macy Yu and Michelle Price; Editing by Lisa Jucca and Clarence Fernandez

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